Readers' comments

Have you studied how long it takes to come out of crises where concurrent major health care overhaul, financial industry regulation and promise of higher taxes face employers in an industrialized world where there are as many lower tax and regulatory regimes abroad as exist today?

The 1870s is very confusing, in part because the data we have are of poor quality. This is why there are very different accounts, with some saying it was the Long Depression and others pointing to years of rapid real per capita income growth. The truth, we may never know. This is the Romer paper that I believe fundamentalist was referring to:

Thanks for the effort, but that isn't the paper I'm thinking of. In the paper you link to she only goes back to 1885. The one I have in mind spends a great deal of time on the 1870's because it was considered a long depression. She shows the problems in methodology and corrects them, making the depression of that period a normal one.

I have lost interets in the economy alas as daily the graph pushes the hope up then it goes down I am thinking of the employes and unemployed . The net says The International Monetary Fund warned that the world economy will be weaker than expected next year and possibly fall into a serious slump. The IMF said policy makers in the United States and Europe must make the right decisions on the economic problems facing their countries. Europe is already in a recession, and its leaders are still trying to get its international debt crisis under control. Politicians in Washington must also reach an agreement on the budget cuts and tax hikes by the end of the year. If they don't, economists have warned the United States could fall back into recession. The skylines lit up at dead of night, the air-conditioning systems cooling empty hotels in the desert and artificial light in the middle of the day all have something both demented and admirable about them. The mindless luxury of a rich civilization, and yet of a civilization perhaps as scared to see the lights go out as was the hunter in his primitive night. -Jean Baudrillard, sociologist and philosopher (1929-2007)

Excellent citation there from Baudrillard. Why would you say that capitalist civilization is so afraid of watching the lights go out, even when they are not performing any productive function? Is that like a silent re-enactment of Capital's own idiosyncratic ontology, namely, that it never sleeps?

Not only are financial crises more severe than their cyclical counterparts, but INTERNATIONAL financial crises (read: Great Depression and Great Recession) are even worse. Continuing weakness in the Eurozone and recent decreased economic growth in China and India will continue to cast a shadow on fragile U.S. recovery.

It was inane to deregulate finance when New Deal regulations led to an unprecedented 4 decades without a SINGLE financial crisis. It is high time to repeal Gramm-Leach-Biley and restore the centralized regulation of ALL financial instruments, including derivatives and other toxic shit "invented" solely as a large-scale scam by the 0.1% on the 99.9%.

Actually, we had a major financial crisis in the mid 80's involving housing then, too. Recall the savings and loan crisis?

Besides, there is no economist blaming the financial crisis on deregulation because no net deregulation of finance has taken place. We repealed glass-steagall in exchange for thousands of new regs under the Basel accords.

1. Reagan BEGAN deregulating finance, particularly with regards to interest rates and what banks can do with customers' deposits. While dynamic interest rates and flexibility CAN be beneficial, in THIS CASE it created a bubble.

2. The problem with the New Deal regulations was not the regulations themselves (which, along with Social Security, is one of the BEST things we got out of the Great Depression). The problem was that the regulations were not UPDATED to include DERIVATIVES, which was one of the CENTRAL causes of the savings and loans crisis. Derivatives were already ~$14 trillion market in the 1990s. Today, it is HUNDREDS of trillions of dollars. In short, derivatives ALONE can cause a SEVERE financial meltdown.

3. Bipartisan policies for easy credit were designed to reduce CONSUMPTION inequality in the face of skyrocketing INCOME inequality. This phenomenon was partly caused by globalization and a stagnant education, but MOSTLY caused by 3 factors: the decline of private unions because reforms were not UPDATED; the runaway increase of wealth from "job creators," aka hedge fund managers and executives whose compensation had LITTLE link to LONG-term profitibility; and the aggressive slashing of tax rates, slanted towards the rich and the uber-rich. The U.S. could have conceivably developed protections seen in the EU and become more like a Norwegian country (which, for the record, balances efficiency with LOW income inequality and MUCH HIGHER social mobility); instead, because businesses have a near-MONOPOLY on campaign funds, they chose easy credit.

Basel accords and market "self-regulation" have two major shortcomings. First, there is LITTLE OFFICIAL OVERSIGHT, meaning that banks can do whatever the fuck they want. Second, it ignores that derivatives can create dangerous levels of leverage DESPITE high capital reserves.

Regardless of what caused the savings and loan crisis, it was a financial crisis. But deregulation did not cause it. Reagan's tax "cuts" included many tax increases, some of which fell on real estate and destroyed demand for real estate.

Derivatives never cause a crisis; they can make crises worse because they are a type of debt.

The idea that derivatives caused the crisis come from journalists, not economists. No serious economist, even mainstream, blame derivatives for the crisis. Among mainstream economists there is no consensus on the causes of the crisis, as FE has noted several times.

Easy monetary policy has always been guided by the idea that monetary pumping can restore economic growth. None of the things you mention mattered to the Fed. Those things are typical socialist hobby horses, but not things the Fed considers and the Fed controls monetary policy.

The Basel accords were European banking regulations. We adopted them because we considered European regulation superior to American. It has nothing to do with self regulation. Basel accords impose much more regulation on US banks than did US regulation. Adopting the Basel accords was a massive increase in regulation and oversight.

Banking is the highest regulated industry in the US behind transportation. There is no way that banks can do whatever they want. Bankers have very little discretion. And regulations have always included derivatives. Derivatives are over 500 years old.

You need to quit reading what journalists say and read real economists on the issue. I highly recommend anything by Gorton, especially his "Slapped by the invisible Hand."

What these graphs fail to take into account is the extreme level of monetary and fiscal stimulus that has been deployed in the case of our most recent crisis. This was not the case with previous systemic crises. It was mainly the action of states across the western world that prevented the Great Recession of 2008/09 from developing into a fully blown Greatest Ever Depression. But this was done at the price of loading states with colossal debts, debts that can only be inflated away.

Extreme monetary policy, yes (in other papers both Reinhart and Rogoff show the decrease in economic output to be lower in the US than elsewhere). Extreme fiscal policy, no. Looking at what a number of economists suggested (even Feldstein wanted a $2 trillion stimulus) a $787 package hardly quantifies as extreme.

Slow recovery is factual position in ritual world in general and developed world in particular but.....Read,read and again read and now think where the world going on but there are two hundred states and these states wasting at least 2/3rd world G.D.P. and then come to concludes that we are living in mid of 2nd great recession/ depression.

And the problem is worse with time. What if it takes a year get a 20% gain? Then you have given up the money you could have been earning had you not experienced a loss. In economics it's called opportunity costs. Most economists ignore opportunity costs and the time value of money.

My letter is about the next stage of the current crisis. Now about my forecast accuracy - as I chose a job in Scotland in 2005, I have been thinking about this crisis; I knew, that it is unexpected and that it lasts until 2020. Nouriel Roubini predicted the twelve stages of current crisis, I predicted the first eight stages - how it will start and develop in USA and UK, but I didn't predict that it covers the whole world and in 2005 I knew that 2020 China will be the largest economy in the world.

Global debt and derivatives market is like a gigantic house of cards, if you take a one card or a one big bank out, you are having crash, as show 2008 crisis, now this gigantic financial house of cards is very fast growing - FINANCIAL IMPLOSION: Global Derivatives Market at $1,200 Trillion Dollars … 20 Times the World Economy

USA, UK, EU and Japan are trying to fix a this gigantic financial bubble or a house of cards by printing the money: trillions dollars, pounds, euro, yen, it is visible part of this crisis and there is invisible part - the tax havens, where is 21-32 trillions $ - main reason for this crisis and the biggest danger now.

A dollar crash is inevitable, as now is going the four processes, which can not be stopped:
1. The ever worsening economic situation in the world, because has been not eliminated a main reason for this crisis - the financial black holes - tax havens: sixty years ago, USA companies accounted for 32.1% of the federal tax take, but by 2009 that proportion plummeted to 8.9%, over the same period, the burden on ordinary workers (paying standard payroll tax) soared from 10% to 40% of all federal tax receipts, according to official data, the same processes took place in all developed countries and the tax havens sucked from world economy 21-32 trillions $.
2. The decreasing dollar market share.
3. The protectionism, the regulation of investment, prohibition to sell the most important companies and more and all these measures have been taken to guard against the dollar...
4. The global system of the tax havens is becoming every year bigger and stronger and more influential, it is practically impossible to reform it now, as show the tax havens history.
A only way to reform the global financial system and central part of it - the tax havens, is crash, a only one question is when?

What happened to all the economist promises about the magical effects of dumping untold billions down the black hole? did we run all those gargantuan deficits for what then? did leftists steamroll every policy making decision in the last 5 years just to say, at the very end, "oh yah well this was always going to take a really really long time."

I guess this is the point in the long con that the mark (the american people) is presented with the fateful decision. He thinks something sounds fishy, but the big smiling keynesians are standing there telling him everything will be alright.

The vast majority of economists I've seen comment, point to the fact that things would have been worse but for the modest stimulus (actually 1/3rd of that was tax cuts). I don't view Mark Zandi as being a raging lefty for example.

The current near term deficits are revenue problem not a spending problem.

So presumably you support the looming year end fiscal cliff as a good thing. If it happens the resulting spending cuts will most likely make the recession double dip, but hey, our increasing deficit will slow (for a brief moment).

yes I'm told that even though their predictions never came true regarding the slapping on of piles of debt, that had we not burdened future generations w/ trillions of dollars armageddon would have taken hold and the cats would eat the dogs and revelations would come to pass and I'd be forced to live w/o indoor plumbing.

I agree with you though, what we don't want is a double dip. we should, in the interests of never having another recession, simply run 3 trillion in deficit next year, and 5 trillion in deficit the year after that, and so on and so forth. because to do anything but that is INSANE, and will lead to the imaginary armageddon we're told we avoided by doing everything they wanted even though nothing they said would happen actually happened.

No matter how long or how many times their policies fail, mainstream economists will always proclaim that they prevented things from becoming worse. Of course, there is no way they can know that. They simply assume their policies work and when they don't they invent a rationalization.

But . . . but . . . if you accept that what we have is a financial crisis, not unlike various ones before, then . . . you can't blame all the current economic issues on the current administration. And since that is unacceptable, this time must be different somehow -- so the recovery could have been far faster, if only....

It's just a matter of deciding what is different, so we can put the blame where we want it to be. (Although if we get into office, and aren't able to do any better, we reserve the right to embrace the whole Reinhart and Rogoff approach to explain why it isn't our fault that things didn't instantly get better when we came into office. After all, nobody will remember what we said about it before we came into office.)

The Great Depression is the only useful analogy to what has happened this time. We learned and did enough to prevent a complete financial collapse. We cannot act on what we learned about recovery, because the GOP has blocked it in the attempt to damage Obama and the Democrats.

History will hold them in the contempt they deserve for intentionally harming their country for partisan political gain.

"This Time Is Different" was the best of all the books on the financial crisis, and its likely aftermath.

But it was more than finance and more than a crisis. Like the movie Inside Job, it failed to emphasize the broader social and economic trend that created the financial imbalances.

For 30 years, an ever rising share of American workers have earned less, and yet chosen/been induced to spend more, to maintain their expected standard of living/live large. (The difference depends on your politics). In Europe the same situation occurred, but instead of spending more Europeans worked less.

Business prospered and the rich piled up lots of paper wealth because the difference between worker earnings and consumer spending was papered over by debt, first private in the U.S. and then public. This house of cards has now collapsed. The financial sector merely found a way to accommodate and amplify the broader irresponsibility of a generation or two, paying itself richly for doing so.

An economic epoch is over. And leadership of institutions, public and private, is concentrated in the hands of those who prospered in that epoch. They have no idea what has happened, or what to do.

Anyone waiting for a jobs recovery with President Obama or Governor Romney is waiting for a huge disappointment.

But in the malaise of decline, traditional businesses will falter while niche businesses involving basic necessities will have opportunities.

Case in point: Because of the financial crisis in real estate, real estate development came to a halt. Yet, people need shelter. One of the students of the Certification Real Estate Development Course (seeing homes could not be purchased) is able to put together a $36,000,000 Apartment Complex in San Diego ready for Joint Venture Investors.

The same niche business opportunities exist in other fields where talent left the industry.

The gift of survival is key now since the U.S. Economy bottomed, hit bottom, and it's staying there.

And the U.S. Government and FED Bernanke money printing monetary policy has not worked, will not work and is coming to an end. (It's just a continual, temporary band aid)

And so, if you possess an entrepreneurial spirit, now is the time to find that niche business and get started. Nobody is going to help you. You will need to be highly motivated. But if you wait, thinking jobs are coming back, you're waiting to die financially.

And don't be fooled by the Presidential candidates. There is NO economic solution for Average Americans.

The wealthy can prosper in this type of economy because of low asset prices, FED Bernanke manipulated stock market, but Average Americans will need to become entrepreneurs.

What if the administration ,(whoever it is )declared that the first $80,000.00 earned is tax free as it is in Trinidad.Do you think that would be enough of an entrepreneurial incentive to stimulate the economy.

Unemployed people cost money.

Let an entrepreneur keep enough of his earnings to sustain a family and he himself will reinvest it in and with other like minded entrepreneurs. Do this and I will guarentee a sustainable economic boom that hasn't been seen in half a century.